1100. In this state, all investments and deposits of the assets of
an insurer, all purchases on behalf of an insurer, and all sales made
of the property and effects of an insurer shall be made in its own
name, or in that of a corporation authorized to act as a trustee
under the laws of this state, or in the name of a nominee of such a
corporation in accordance with any law of this state permitting such
a trustee to make use of nominees, or in the name of a qualified
custodian, qualified subcustodian, or qualified depository (as
defined in Section 1104.9) or in the name of a nominee of a qualified
custodian, qualified subcustodian, or qualified depository, provided
that the nominee is not a corporation and, as to any nominee which
is a partnership, the partnership shall consist solely of the
employees, officers, or directors of the qualified custodian,
qualified subcustodian, or qualified depository or a corporation
which is a member of the same holding company system as the nominee,
or any combination thereof, or in the name of a nominee approved by
the commissioner.
1100.1. Every admitted incorporated insurer may under a certificate
of authority issued pursuant to the provisions of Article 3
(commencing with Section 699), engage in this state in the type of
loan transactions otherwise permitted by law without obtaining any
other license or certificate.
Pursuant to the authority contained in Section 1 of Article XV of
the State Constitution, the restrictions upon rates of interest
contained in Section 1 of Article XV of the California Constitution
shall not apply to any obligation of, loans made by, or forbearances
of, any incorporated admitted insurer.
This section creates and authorizes incorporated admitted insurers
as an exempt class of persons pursuant to Section 1 of Article XV of
the Constitution.
1101. (a) An admitted insurer's officers, directors, trustees and
any persons who have authority in the management of the insurer's
funds, shall not, unless otherwise provided in this code:
(1) Receive any money or valuable thing for negotiating,
procuring, recommending or aiding in, any purchase by or sale to such
insurer of any property, or any loan from such insurer.
(2) Be pecuniarily interested as principal, coprincipal, agent,
attorney or beneficiary, in any such purchase, sale or loan.
(3) Directly or indirectly purchase, or be interested in the
purchase of, any of the assets of the insurer.
(b) This section shall not apply to:
(1) The purchase or exchange of stock of an admitted insurer by an
admitted insurer or between admitted insurers nor to any merger,
consolidation or corporate reorganization of such insurers, and shall
not apply as to such purchase, merger, exchange, consolidation or
reorganization, nor to the officers, directors, trustees or any
persons having authority in the management of such insurers funds in
respect to any such transaction and no such transaction shall be
either void or voidable, if:
(i) The transaction is just and reasonable as to the insurers
involved at the time it is authorized or approved and if no such
officer, director, trustee or other person having authority in the
management of such insurers funds receives any money or other
valuable thing, other than his usual compensation for his regular
duties, for negotiating, procuring, recommending or aiding in such
transaction, and, either
(ii) Any interest in such transaction on the part of any officers,
directors, trustees, or persons who have authority in the management
of any such insurer's funds is disclosed or known to its board of
directors or committee, authorizing, approving or ratifying the
transaction, and noted in the minutes thereof, and the board or
committee authorizes, approves or ratifies the transaction in good
faith by a vote sufficient for the purpose without counting the vote
or votes of any interested officers, directors, trustees, or persons
who have authority in the management of the funds of any such
insurer, or
(iii) The fact of such interest is disclosed or known to the
shareholders in the case of a stock insurance company, or in the case
of a mutual insurer to the policyholders, and they approve or ratify
the transaction in good faith by a vote or written consent of a
majority of the shares or policyholders, as the case may be, entitled
to vote, unless the consent or vote of more than a majority is
otherwise required, in which event the vote or written consent shall
be that so otherwise required.
Any such officer, director, trustee, or other person who has such
interest may be counted in determining the presence of a quorum at
any meeting which authorizes, approves or ratifies such transaction.
(2) Any transaction relating to an insurer if the transaction
meets the other requirements of subdivision (b) and such officers,
directors, and trustees of the insurer do not in the aggregate own
more than 5 percent of the stock of any corporation with which the
insurer is entering into a transaction.
(3) Any transaction if prior to its consummation the insurer has
applied for and obtained from the commissioner a certificate of
exemption in respect to the specific transaction therein described
and such transaction is consummated in conformity with such
certificate and the representations and disclosures made in or in
connection with the application therefor.
(i) To obtain the certificate of exemption the insurer shall file
with the commissioner a written application, accompanied by a filing
fee of two hundred ninety-five dollars ($295). Such application shall
be verified as provided in Section 834, be in such form as the
commissioner shall require and shall contain all of the following:
(A) A specific description of the particular transaction for which
the certificate is sought.
(B) Copies of all contracts and other legal documents involved or
to be involved in the transaction.
(C) A description of all assets involved in the transaction.
(D) The names, titles, capacities and business relationships of
all persons in any way involved in the transaction who are connected
with the insurer or any of its affiliates, officers, directors,
managers, or controlling persons or entities in any of the capacities
described in this section.
(E) A description of any and all considerations on either or any
side of the transaction.
(F) Evidence that its governing board has specifically authorized
the filing of the application.
(G) Such other information, opinions, or matters as the
commissioner may require.
The commissioner may issue such certificate of exemption if he
finds, with or without a hearing, that the transaction is fair, just
and equitable and not hazardous to policyholders, stockholders or
creditors. The commissioner may impose such conditions, including but
not limited to disclosure of the circumstances and terms of the
transaction either before or after its consummation either publicly
or to such persons and entities as he may designate and the approval
of the transaction by such persons or entities as he may designate.
He may also require that a report of the transaction be filed with
him subsequent to its consummation in such form and containing such
information as he may prescribe.
The certificate of exemption issued pursuant to paragraph (3) of
subdivision (b) shall only exempt the transaction from the
prohibitions of this section and shall not affect the rights or
remedies of any persons under any other law.
The amendment made to this section at the 1955 General Session
shall not apply to contracts, sales, transfers or other transactions
entered into prior to the effective date hereof.
The commissioner shall not issue a certificate of exemption under
paragraph (3) of subdivision (b) in respect to any transaction
consummated prior to the effective date of the amendment made to this
section at the 1967 Regular Session.
(c) Whenever it appears to the commissioner that any insurer, or
any director, officer, employee, or agent thereof, has committed or
is about to commit a violation of this section, the commissioner may
apply to the superior court for the county in which the principal
office of the insurer is located, or if such insurer has no such
office in this state, then to the Superior Court for the County of
Los Angeles, or for the City and County of San Francisco, for an
order enjoining such insurer, or such director, officer, employee, or
agent thereof, from violating or continuing to violate this section,
and for such other equitable relief as the nature of the case and
the interests of the insurer's policyholders, creditors, and
shareholders or the public may require.
1101.1. An officer, excluding a director who holds no other office,
or employee of an admitted insurer shall not receive any money or
valuable thing directly or indirectly as a brokerage commission on
reinsurance ceded by such insurer and an insurer shall not pay such
commissions. This provision shall not apply to brokerage or
commissions authorized by the board of directors of the ceding
insurer as compensation for services actually rendered nor to
dividends received by any such officer or employee upon the stock of
a corporation in which such officer or employee or his immediate
family does not own a controlling interest or in fact exercises
control.
1102. The financial obligation of any officer, director, trustee,
or other person having authority in the management of an insurer's
funds shall not be guaranteed by such insurer in any capacity, and
any such guarantee shall be void.
1103. Whenever an insurer is injured or made to suffer loss by
reason of any violation of the provisions of sections 1101, 1102 or
1104, such insurer may recover from the guilty officer, director,
trustee or other person, or any one or more of them jointly or
severally damages sufficient to compensate such insurer for such
loss.
1104. An admitted insurer shall not make any loan, other than a
policy loan, to any officer, director, trustee or other person having
authority in the management of its funds, nor shall such officer,
director, trustee or other person accept any such loan.
This section does not prohibit a loan to, or for the benefit of,
an employee for the purpose of paying the premiums on a life
insurance policy on the life of such employee.
1104.1. The commissioner may from time to time require any domestic
admitted insurer to report to him, in such detail as he may
prescribe, the moneys and securities owned by it, the place where
such moneys and securities are deposited and, in the case of moneys
and securities deposited outside the State, the reason for
maintaining each such deposit outside the State.
Whenever the commissioner after hearing following notice, finds
that such moneys or securities are maintained on deposit outside the
State in excess of legal requirements and of the reasonable needs of
the business of such insurer, he may order such insurer to transfer
to, and maintain in, this State money and securities to the extent of
such excess and to cease, pending such transfer, from unnecessary
transfers of moneys and securities from this State to any place
outside this State.
1104.2. Every person who is directly or indirectly the beneficial
owner of more than 10 percent of any class of stock of a domestic
insurer or who is a director or officer of such insurer shall file in
the office of the Insurance Commissioner on or before the 31st day
of October, 1965, or within 10 days after he becomes such a
beneficial owner, director or officer, a statement, in such form as
the commissioner may prescribe, of the amount of all stock of such
insurer of which he is the beneficial owner, and within 10 days after
the close of each calendar month thereafter, if there has been a
change in such ownership during such month, shall file in the office
of the commissioner a statement, in such form as the commissioner
shall prescribe, indicating his ownership at the close of the
calendar month and such changes in his ownership as have occurred
during such calendar month.
1104.3. For the purpose of preventing the unfair use of information
which may have been obtained by any beneficial owner of an insurer,
or director or officer thereof, described in Section 1104.2, by
reason of his relationship to such insurer, any profit realized by
him from any purchase and sale, or any sale and purchase, of any
stock of such insurer within any period of less than six months,
unless such stock was acquired in good faith in connection with a
debt previously contracted, shall inure to, and be recoverable by,
the insurer, irrespective of the intent of the beneficial owner,
director or officer who entered into the transaction of holding the
stock purchased or not repurchasing the stock sold for a period
exceeding six months. Suit to recover such profit may be instituted
at law or in equity in any court of competent jurisdiction by the
insurer or by the owner of any stock of the insurer in the name of
and on behalf of the insurer if the insurer shall fail or refuse to
bring such suit within 60 days after request or shall fail diligently
to prosecute the same thereafter; but no such suit shall be brought
more than two years after the date such profit was realized. This
section shall not be construed to cover any transaction where a
beneficial owner was not such both at the time of the purchase and
sale, or the sale and purchase, of the stock involved, or any
transaction or transactions which the commissioner may by rules and
regulations exempt as not within the scope of this section or Section
1104.2.
1104.4. It shall be unlawful for any beneficial owner of an
insurer, or director or officer thereof, described in Section 1104.2,
to, directly or indirectly, sell any stock of such insurer if he or
his principal does not own the stock sold, or, if he or his principal
owns the stock, he does not deliver it against such sale within 20
days thereafter, or does not within five days after such sale deposit
it in the mails or other usual channels of transportation; but no
person shall be deemed to have violated this section if he proves
that notwithstanding the exercise of good faith he was unable to make
such delivery or deposit within such time, or that to do so would
cause undue inconvenience or expense.
1104.5. The provisions of Section 1104.3 shall not apply to any
purchase and sale, or sale and purchase, and the provisions of
Section 1104.4 shall not apply to any sale of stock of a domestic
insurer (not then or theretofore held in an investment account), by a
dealer in the ordinary course of his business and incidental to the
establishment or maintenance by him of a primary or secondary market
(other than on an exchange as defined in the Securities Exchange Act
of 1934) for such stock. The commissioner may, by such rules and
regulations as he deems necessary or appropriate in the public
interest, define and prescribe terms and conditions with respect to
stock held in an investment account and transactions made in the
ordinary course of business and incident to the establishment or
maintenance of a primary or secondary market.
1104.6. The provisions of Sections 1104.2, 1104.3, and 1104.4 shall
not apply to foreign or domestic arbitrage transactions unless made
in contravention of such rules and regulations as the commissioner
may adopt in order to carry out the purposes of this article.
1104.7. The term "stock" as it is used in Sections 1104.2, 1104.3,
1104.4, 1104.5 and 1104.8 means any stock or similar security, or any
security, convertible, with or without consideration, into such
stock or carrying any warrant or right to subscribe to or purchase
such stock, or any such warrant or right, or any other security which
the commissioner shall deem to be of similar nature and consider
necessary or appropriate, by such rules and regulations as he may
prescribe in the public interest or for the protection of investors,
to treat as stock.
1104.8. The provisions of Sections 1104.2, 1104.3, and 1104.4 shall
not apply to a domestic insurer if:
(a) Its stock shall be registered, or shall be required to be
registered, pursuant to Section 12 of the Securities Exchange Act of
1934, as amended; or if
(b) Such domestic insurer shall not have any class of its stock
held of record by 100 or more persons on the last business day of the
year next preceding the year in which stock of the insurer would be
subject to the provisions of Sections 1104.2, 1104.3, and 1104.4
except for the provisions of this subdivision.
1104.9. (a) (1) As used in this section, "qualified custodian"
means: (A) commercial banks (as defined in Section 105 of the
Financial Code), savings and loan associations (as defined in Section
5102 of the Financial Code), and trust companies (other than trust
departments of title insurance companies), or any entity approved by
the commissioner as a qualified custodian; (B) that is either (i)
domiciled and has a principal place of business in this state or (ii)
a national banking association with a trust office located in this
state; and (C) that either has a net worth of at least one hundred
million dollars ($100,000,000) or is able to demonstrate to the
satisfaction of the commissioner that it is financially secure. The
commissioner may consider, among other factors, evidence of the
following in order to determine whether a custodian is financially
secure for the purpose of this subdivision: (i) its obligations under
an agreement approved by the commissioner pursuant to subdivision
(c) are guaranteed by its parent holding company, (ii) its parent
holding company has a net worth of at least one hundred million
dollars ($100,000,000), or (iii) it is a member of a holding company
system with a net worth of at least one hundred million dollars
($100,000,000).
(2) As used in this section, "qualified depository" means an
entity that is located in this state or a reciprocal state and is (A)
a depository that provides for the long-term immobilization of
securities or a clearing corporation that is also a depository, and
that in either case has been approved by or registered with the
Securities and Exchange Commission, (B) a Federal Reserve bank, or
(C) an entity approved by the commissioner as a qualified depository.
A "qualified depository" may also include an entity that is
located outside the United States, if it is a securities depository
and clearing agency, incorporated or organized under the laws of a
country other than the United States, (i) that operates a
transnational system for securities or equivalent book entries
(specifically Euroclear and Cedel, or successors to all or
substantially all of their operations), or (ii) that operates a
central system for securities or equivalent book entries, but solely
for securities issued by, or by entities within, the country in which
the securities depository and clearing agency is incorporated or
organized. The depository shall meet all qualifying requirements
imposed by this section upon Euroclear or Cedel.
(3) As used in this section, "qualified subcustodian" means an
entity located in this state or a reciprocal state (A) that holds
securities of the domestic insurer, and maintains an account through
which the securities are held, in this state or a reciprocal state
and (B) that has shareholder equity of at least one hundred million
dollars ($100,000,000) or is able to demonstrate to the satisfaction
of the commissioner that it is financially secure. The qualified
subcustodian shall be: (A) a commercial bank, a savings and loan
association, or a trust company (other than trust departments of
title insurance companies); (B) a subsidiary of a qualified
custodian; or (C) any entity approved by the commissioner as a
qualified subcustodian. The commissioner may consider, among other
factors, evidence of the following in order to determine whether a
subcustodian is financially secure for the purpose of this
subdivision: (i) its obligations are guaranteed by its parent
company, (ii) its parent holding company has shareholder equity of at
least one hundred million dollars ($100,000,000), or (iii) it is a
member of a holding company system with shareholder equity of at
least one hundred million dollars ($100,000,000). A "qualified
subcustodian" may also include an entity that is located outside the
United States, that is used by the domestic insurer for the purpose
of obtaining access to a qualified depository located outside the
United States. The qualified foreign subcustodian shall be a banking
institution or trust company, incorporated or organized under the
laws of a country other than the United States, that is regulated by
that country's government or an agency thereof, and that has
shareholders' equity in excess of two hundred million dollars
($200,000,000), whether in United States dollars or the equivalent of
United States dollars, as of the close of its most recently
completed fiscal year; or a majority-owned direct or indirect
subsidiary of a qualified United States bank or bank holding company,
if the subsidiary is incorporated or organized under the laws of a
country other than the United States and has shareholders' equity in
excess of one hundred million dollars ($100,000,000), whether in
United States dollars or the equivalent of United States dollars, as
of the close of its most recently completed fiscal year; or is able
to demonstrate to the satisfaction of the commissioner that it is
financially secure. The commissioner may consider, among other
factors, evidence of the following in order to determine whether a
qualified foreign subcustodian is financially secure for purposes of
this subdivision: (i) its obligations are guaranteed by its parent
company, (ii) its parent holding company has shareholder equity of at
least two hundred million dollars ($200,000,000), or (iii) it is a
member of a holding company system with shareholder equity of at
least two hundred million dollars ($200,000,000).
(4) As used in this section, "subsidiary" means: (A) an entity all
of whose voting securities (other than director qualifying shares,
if any) are owned, directly or indirectly, by a qualified custodian;
or (B) any affiliated entity approved by the commissioner as a
subsidiary of a qualified custodian. For the purpose of this section,
an affiliated entity means an entity that (A) controls or is
controlled, either directly or indirectly or through one or more
intermediaries by a qualified custodian or (B) is under the common
control, directly or indirectly, as or with a qualified custodian.
(5) As used in this section, "entity approved by the commissioner
as a qualified custodian," "entity approved by the commissioner as a
qualified depository," "entity approved by the commissioner as a
qualified subcustodian," and "entity approved by the commissioner as
a subsidiary of a qualified custodian" mean those entities that meet
the conditions or standards established by the commissioner. The
commissioner shall charge and collect in advance a one-time fee of
one thousand five hundred dollars ($1,500) to review an application
for approval of any entity pursuant to this section.
(6) As used in this section, "reciprocal state" has the same
meaning as in subdivision (f) of Section 1064.1.
(7) As used in this section, "moneys" means cash held incidental
to securities transactions occurring in the ordinary course of
business with respect to securities held pursuant to the custodial
agreements under this section.
(8) (A) Except as provided in subparagraph (B), as used in this
section, "insurer," "domestic insurer," and "domestic admitted
insurer" mean any insurer, other than a domestic life insurer that is
incorporated or that has its principal place of business in this
state. Except as provided in subparagraph (B), no portion of this
section applies to domestic life insurers nor shall this section
affect the interpretation of any other portion of this code with
respect to domestic life insurers nor is it intended to create a
precedent for the application of its provisions to those insurers.
However, the exclusion of domestic life insurers from this section
shall not be construed to diminish the commissioner's existing
authority over those insurers under any other provision of this code.
(B) Domestic life insurers that are wholly owned by any insurer
other than a domestic life insurer or are part of an insurance
holding company system whose other insurer affiliates are not
domestic life insurers may elect to be subject to this section by
affirmatively stating that election in the statement otherwise
required to be filed by that system pursuant to Section 1215.4.
(b) Notwithstanding Section 1104.1, a domestic admitted insurer
may maintain its securities and moneys in a reciprocal state, subject
to the requirements of this section, through a custodian account
located in California in or with a qualified custodian, and that
qualified custodian may maintain those securities or moneys in a
qualified depository or qualified subcustodian, either or both of
which may be located in a reciprocal state. In addition, a domestic
insurer that has foreign investments or any other investments that
require delivery outside of the United States upon sale or maturity
that qualify under Section 1240, 1241, or 10506, or any other
provision of this code, may maintain those securities or moneys in or
with a qualified depository located in a jurisdiction outside the
United States. However, the aggregate amount of general account
investments so deposited shall not exceed the lesser of 5 percent of
the total admitted assets of the insurer or 25 percent of the excess
of admitted assets over the sum of paid-up capital, liabilities, and
surplus required by Section 700.02. However, unless exempted by the
commissioner, not more than 50 percent of that amount of assets that
an insurer is authorized to invest pursuant to Section 1241 or 1241.1
may be maintained in any single country in a qualified depository as
defined in clause (ii) of paragraph (2) of subdivision (a) and as to
life companies not more than 12.5 percent of that amount of assets
that an insurer is authorized to invest pursuant to Section 1241 or
1241.1 may be maintained in any single country in a qualified
depository as defined in clause (ii) of paragraph (2) of subdivision
(a). The percentage or dollar value of admitted assets and paid-up
capital and liabilities shall be determined by the insurer's last
preceding annual statement of conditions and affairs made as of the
preceding December 31 that has been filed with the commissioner
pursuant to law. No broker or agent, as defined in the Federal
Securities Exchange Act of 1934 (15 U.S.C. Sec. 78c et seq.), may
serve as a qualified custodian, qualified subcustodian, or qualified
depository under this section. However, no otherwise qualified
custodian or subcustodian shall be disqualified on account of its
activities as a broker or dealer, as so defined, when the activities
are incidental to its custodial or other business.
(c) No securities shall be deposited in or with a qualified
custodian, qualified depository, or qualified subcustodian except as
authorized by an agreement between the insurer and the qualified
custodian, if the agreement is satisfactory to and has been approved
by the commissioner. The agreement shall require that the securities
be held by the qualified custodian for the benefit of the insurer and
that the books and records of the qualified custodian shall so
designate. The agreement shall further require that beneficial title
to the securities remain in the insurer and shall require that the
qualified subcustodian and qualified depository be the agents of the
qualified custodian. The agreement shall also specifically require
that the qualified custodian shall exercise the standard of care of a
professional custodian engaged in the banking or trust company
industry and having professional expertise in financial and
securities processing transactions and custody would observe in these
affairs. This section does not affect the burden of proof under
applicable law with respect to the assertion of liability in any
claim, action, or dispute alleging any breach of, or failure to
observe, that standard of care.
(d) No agreement between the qualified custodian and the insurer
shall be approved by the commissioner unless the qualified custodian
agrees therein to comply with this section. Except when the agreement
is submitted in conjunction with an application for an original
certificate of authority or variable contract qualification, a fee of
five hundred dollars ($500) shall be paid to the commissioner at the
time of filing the agreement for approval. However, no fee shall be
required if the form of the agreement has been previously submitted
for approval and approved by the commissioner as certified by the
insurer and qualified custodian submitting the agreement to the
commissioner. The agreement shall be deemed approved unless, within
60 days after receipt by the commissioner of that agreement and any
required filing fee, the commissioner has disapproved the agreement
in writing citing specific reasons for disapproval.
(e) Notwithstanding the maintenance of securities with an
out-of-state qualified depository or qualified subcustodian pursuant
to agreement, if the commissioner has reasonable cause to believe
that the domestic insurer (1) is conducting its business and affairs
in a manner as to threaten to render it insolvent, or (2) is in a
hazardous condition or is conducting its business and affairs in a
manner that is hazardous to its policyholders, creditors, or the
public, or (3) has committed or is committing or has engaged or is
engaging in any act that would constitute grounds for rendering it
subject to conservation or liquidation proceedings, or if the
commissioner determines that irreparable loss and injury to the
property and business of the domestic insurer has occurred or may
occur unless the commissioner acts immediately, then the commissioner
may, without hearing, order the insurer and the qualified custodian
promptly to effect the transfer of the securities back to a qualified
custodian, qualified subcustodian, or qualified depository located
in this state from any qualified depository or qualified subcustodian
located outside of this state (the transfer order). Upon receipt of
the transfer order, the qualified custodian shall promptly effect the
return of the securities. Notwithstanding the pendency of any
hearing or action provided for in subdivision (f), the transfer order
shall be complied with by those persons subject to that order. Any
challenge to the validity of the transfer order shall be made in
accordance with subdivision (f). It is the responsibility of both the
insurer and the qualified custodian to oversee that compliance with
the transfer order is completed as expeditiously as possible. Upon
receipt of a transfer order, there shall be no trading of the
securities without specific instructions from the commissioner until
the securities are received in this state, except to the extent
trading transactions are in process on the day the transfer order is
received by the insurer and the failure to complete the trade may
result in loss to the insurer's account. Issuance of a transfer order
does not affect the qualified custodian's liabilities with regard to
the securities that are the subject of the order.
(f) At the same time the transfer order is served, the
commissioner shall issue and also serve upon the insurer a notice of
hearing to be held at a time and place fixed therein which shall not
be less than 20 nor more than 45 days after the service thereof. Upon
request of the insurer and agreement of the department, the hearing
may be held within a shorter time but in no event less than 10 days
after the service of the notice of hearing. The transfer order and
notice of hearing may be served by certified mail, express mail,
messenger, telegram, or any other means calculated to give prompt
actual notice to (1) the California office of the insurer designated
in the agreement, its home office as shown on its most recently filed
annual or quarterly statement, or its California agent for service
of process; and (2) the California office of the qualified custodian
designated in the agreement. If, as a result of the hearing, any of
the statements as to conduct, conditions, or grounds for the transfer
order are found to be true, or if other conditions or grounds are
discovered or become known at the hearing and are found to be true,
the commissioner shall affirm the transfer order and may make
additional order or orders, pertaining to the transfer order, as may
be reasonably necessary.
The insurer subject to the transfer order is entitled to judicial
review in the state of the commissioner's order issued as a result of
the hearing.
Alternatively, at any time prior to the commencement of the
hearing on the transfer order, the insurer may waive the hearing and
have judicial review in this state of the transfer order by petition
for writ of mandate and declaratory relief without first exhausting
administrative remedies or procedures. In that event the insurer is
not entitled to any extraordinary remedies prior to trial.
No person other than the insurer has standing at the hearing by
the commissioner or for any judicial review of the transfer order.
1105. This article shall not prevent:
(a) The purchase by any person of any asset which the commissioner
requires to be sold, at a price approved by the commissioner.
(b) The borrowing in accordance with its terms by any person upon
a policy of life insurance upon his own life.
(c) The payment of a fee to any attorney for legal services
rendered to any such insurer.
(d) The receipt of advances under agency contracts by agents of
life insurers.
(e) Any admitted insurer's officers, directors, trustees or other
persons who have authority in the management of the funds of such
insurer from entering into any transaction with such insurer if:
(1) Such transaction is pursuant to a permit issued by the
Insurance Commissioner under authority granted to him by other
provisions of this code or is such as requires his approval prior to
its consummation under other provisions of this code;
(2) The application for any such permit or the request for any
such approval sets forth under oath the complete details concerning
all such transactions with any such officers, directors, trustees or
other persons; and
(3) Where the commissioner in his permit or approval specifically
finds that the consummation of such transaction will not be unfair,
unjust or inequitable to such insurer or to any of its stockholders
or policyholders.
(f) Any transaction between an insurer and a person having
authority in the management of the insurer's funds (except officers,
directors, and trustees), if such insurer is subject to registration
and reporting under the Insurance Holding Company System Regulatory
Act (Article 4.7 (commencing with Section 1215) of Chapter 2 of this
part), or subject to substantially similar registration and reporting
requirements under the laws of its domicile.
(g) An admitted insurer making a loan for the purchase of a
principal residence by, and acquiring, at a price not to exceed the
fair market value thereof, the principal residence from, an officer
or person having authority in management of the insurer's funds, nor
shall such officer or person be prohibited from accepting such loan
or acquisition, in connection with the relocation of the place of
employment at the request of the insurer, either during the course of
employment or upon initial employment of such officer or person
having authority in management of the insurer's funds.
Any loan permitted under this subdivision shall be secured by a
first trust deed or first mortgage, shall not exceed 90 percent of
the fair market value of the property, shall carry an interest rate
no more favorable than that rate given to other employees of such
insurer not subject to the limitations of this article and shall be
subject to the approval of the insurer's board of directors or
delegated committee thereof.
This subdivision shall not apply to directors and trustees of
insurers.
1106. Any person violating, or wilfully aiding another in the
violation of, Sections 1101, 1101.1, 1102, 1103, 1104 or the
commissioner's order issued pursuant to Section 1104.1 is guilty of a
misdemeanor. The commissioner shall, after a hearing upon due
notice, revoke, or deny the renewal of, the certificate of authority
of a domestic admitted insurer persisting for more than 60 days from
and after the commissioner's order issued pursuant to Section 1104.1
in failure to comply with such order. The proceedings shall be
conducted in accordance with Chapter 5 of Part 1 of Division 3 of
Title 2 of the Government Code and the commissioner shall have the
powers granted therein.
1107. In accordance with either subdivision (e) of Section 1001 or
Section 1101.1 of the Corporations Code, an insurer may apply for the
insurance commissioner's approval of the terms and conditions of the
covered transactions and the fairness of such terms and conditions
to deliver consideration other than securities which shall be in such
form, contain such information and be accompanied by such documents
as the commissioner deems appropriate or requires.
1107.1. The commissioner shall require the payment of two hundred
fifty dollars ($250) in lawful money of the United States as fee for
the determination referred to in Section 1107.
1100. In this state, all investments and deposits of the assets of
an insurer, all purchases on behalf of an insurer, and all sales made
of the property and effects of an insurer shall be made in its own
name, or in that of a corporation authorized to act as a trustee
under the laws of this state, or in the name of a nominee of such a
corporation in accordance with any law of this state permitting such
a trustee to make use of nominees, or in the name of a qualified
custodian, qualified subcustodian, or qualified depository (as
defined in Section 1104.9) or in the name of a nominee of a qualified
custodian, qualified subcustodian, or qualified depository, provided
that the nominee is not a corporation and, as to any nominee which
is a partnership, the partnership shall consist solely of the
employees, officers, or directors of the qualified custodian,
qualified subcustodian, or qualified depository or a corporation
which is a member of the same holding company system as the nominee,
or any combination thereof, or in the name of a nominee approved by
the commissioner.
1100.1. Every admitted incorporated insurer may under a certificate
of authority issued pursuant to the provisions of Article 3
(commencing with Section 699), engage in this state in the type of
loan transactions otherwise permitted by law without obtaining any
other license or certificate.
Pursuant to the authority contained in Section 1 of Article XV of
the State Constitution, the restrictions upon rates of interest
contained in Section 1 of Article XV of the California Constitution
shall not apply to any obligation of, loans made by, or forbearances
of, any incorporated admitted insurer.
This section creates and authorizes incorporated admitted insurers
as an exempt class of persons pursuant to Section 1 of Article XV of
the Constitution.
1101. (a) An admitted insurer's officers, directors, trustees and
any persons who have authority in the management of the insurer's
funds, shall not, unless otherwise provided in this code:
(1) Receive any money or valuable thing for negotiating,
procuring, recommending or aiding in, any purchase by or sale to such
insurer of any property, or any loan from such insurer.
(2) Be pecuniarily interested as principal, coprincipal, agent,
attorney or beneficiary, in any such purchase, sale or loan.
(3) Directly or indirectly purchase, or be interested in the
purchase of, any of the assets of the insurer.
(b) This section shall not apply to:
(1) The purchase or exchange of stock of an admitted insurer by an
admitted insurer or between admitted insurers nor to any merger,
consolidation or corporate reorganization of such insurers, and shall
not apply as to such purchase, merger, exchange, consolidation or
reorganization, nor to the officers, directors, trustees or any
persons having authority in the management of such insurers funds in
respect to any such transaction and no such transaction shall be
either void or voidable, if:
(i) The transaction is just and reasonable as to the insurers
involved at the time it is authorized or approved and if no such
officer, director, trustee or other person having authority in the
management of such insurers funds receives any money or other
valuable thing, other than his usual compensation for his regular
duties, for negotiating, procuring, recommending or aiding in such
transaction, and, either
(ii) Any interest in such transaction on the part of any officers,
directors, trustees, or persons who have authority in the management
of any such insurer's funds is disclosed or known to its board of
directors or committee, authorizing, approving or ratifying the
transaction, and noted in the minutes thereof, and the board or
committee authorizes, approves or ratifies the transaction in good
faith by a vote sufficient for the purpose without counting the vote
or votes of any interested officers, directors, trustees, or persons
who have authority in the management of the funds of any such
insurer, or
(iii) The fact of such interest is disclosed or known to the
shareholders in the case of a stock insurance company, or in the case
of a mutual insurer to the policyholders, and they approve or ratify
the transaction in good faith by a vote or written consent of a
majority of the shares or policyholders, as the case may be, entitled
to vote, unless the consent or vote of more than a majority is
otherwise required, in which event the vote or written consent shall
be that so otherwise required.
Any such officer, director, trustee, or other person who has such
interest may be counted in determining the presence of a quorum at
any meeting which authorizes, approves or ratifies such transaction.
(2) Any transaction relating to an insurer if the transaction
meets the other requirements of subdivision (b) and such officers,
directors, and trustees of the insurer do not in the aggregate own
more than 5 percent of the stock of any corporation with which the
insurer is entering into a transaction.
(3) Any transaction if prior to its consummation the insurer has
applied for and obtained from the commissioner a certificate of
exemption in respect to the specific transaction therein described
and such transaction is consummated in conformity with such
certificate and the representations and disclosures made in or in
connection with the application therefor.
(i) To obtain the certificate of exemption the insurer shall file
with the commissioner a written application, accompanied by a filing
fee of two hundred ninety-five dollars ($295). Such application shall
be verified as provided in Section 834, be in such form as the
commissioner shall require and shall contain all of the following:
(A) A specific description of the particular transaction for which
the certificate is sought.
(B) Copies of all contracts and other legal documents involved or
to be involved in the transaction.
(C) A description of all assets involved in the transaction.
(D) The names, titles, capacities and business relationships of
all persons in any way involved in the transaction who are connected
with the insurer or any of its affiliates, officers, directors,
managers, or controlling persons or entities in any of the capacities
described in this section.
(E) A description of any and all considerations on either or any
side of the transaction.
(F) Evidence that its governing board has specifically authorized
the filing of the application.
(G) Such other information, opinions, or matters as the
commissioner may require.
The commissioner may issue such certificate of exemption if he
finds, with or without a hearing, that the transaction is fair, just
and equitable and not hazardous to policyholders, stockholders or
creditors. The commissioner may impose such conditions, including but
not limited to disclosure of the circumstances and terms of the
transaction either before or after its consummation either publicly
or to such persons and entities as he may designate and the approval
of the transaction by such persons or entities as he may designate.
He may also require that a report of the transaction be filed with
him subsequent to its consummation in such form and containing such
information as he may prescribe.
The certificate of exemption issued pursuant to paragraph (3) of
subdivision (b) shall only exempt the transaction from the
prohibitions of this section and shall not affect the rights or
remedies of any persons under any other law.
The amendment made to this section at the 1955 General Session
shall not apply to contracts, sales, transfers or other transactions
entered into prior to the effective date hereof.
The commissioner shall not issue a certificate of exemption under
paragraph (3) of subdivision (b) in respect to any transaction
consummated prior to the effective date of the amendment made to this
section at the 1967 Regular Session.
(c) Whenever it appears to the commissioner that any insurer, or
any director, officer, employee, or agent thereof, has committed or
is about to commit a violation of this section, the commissioner may
apply to the superior court for the county in which the principal
office of the insurer is located, or if such insurer has no such
office in this state, then to the Superior Court for the County of
Los Angeles, or for the City and County of San Francisco, for an
order enjoining such insurer, or such director, officer, employee, or
agent thereof, from violating or continuing to violate this section,
and for such other equitable relief as the nature of the case and
the interests of the insurer's policyholders, creditors, and
shareholders or the public may require.
1101.1. An officer, excluding a director who holds no other office,
or employee of an admitted insurer shall not receive any money or
valuable thing directly or indirectly as a brokerage commission on
reinsurance ceded by such insurer and an insurer shall not pay such
commissions. This provision shall not apply to brokerage or
commissions authorized by the board of directors of the ceding
insurer as compensation for services actually rendered nor to
dividends received by any such officer or employee upon the stock of
a corporation in which such officer or employee or his immediate
family does not own a controlling interest or in fact exercises
control.
1102. The financial obligation of any officer, director, trustee,
or other person having authority in the management of an insurer's
funds shall not be guaranteed by such insurer in any capacity, and
any such guarantee shall be void.
1103. Whenever an insurer is injured or made to suffer loss by
reason of any violation of the provisions of sections 1101, 1102 or
1104, such insurer may recover from the guilty officer, director,
trustee or other person, or any one or more of them jointly or
severally damages sufficient to compensate such insurer for such
loss.
1104. An admitted insurer shall not make any loan, other than a
policy loan, to any officer, director, trustee or other person having
authority in the management of its funds, nor shall such officer,
director, trustee or other person accept any such loan.
This section does not prohibit a loan to, or for the benefit of,
an employee for the purpose of paying the premiums on a life
insurance policy on the life of such employee.
1104.1. The commissioner may from time to time require any domestic
admitted insurer to report to him, in such detail as he may
prescribe, the moneys and securities owned by it, the place where
such moneys and securities are deposited and, in the case of moneys
and securities deposited outside the State, the reason for
maintaining each such deposit outside the State.
Whenever the commissioner after hearing following notice, finds
that such moneys or securities are maintained on deposit outside the
State in excess of legal requirements and of the reasonable needs of
the business of such insurer, he may order such insurer to transfer
to, and maintain in, this State money and securities to the extent of
such excess and to cease, pending such transfer, from unnecessary
transfers of moneys and securities from this State to any place
outside this State.
1104.2. Every person who is directly or indirectly the beneficial
owner of more than 10 percent of any class of stock of a domestic
insurer or who is a director or officer of such insurer shall file in
the office of the Insurance Commissioner on or before the 31st day
of October, 1965, or within 10 days after he becomes such a
beneficial owner, director or officer, a statement, in such form as
the commissioner may prescribe, of the amount of all stock of such
insurer of which he is the beneficial owner, and within 10 days after
the close of each calendar month thereafter, if there has been a
change in such ownership during such month, shall file in the office
of the commissioner a statement, in such form as the commissioner
shall prescribe, indicating his ownership at the close of the
calendar month and such changes in his ownership as have occurred
during such calendar month.
1104.3. For the purpose of preventing the unfair use of information
which may have been obtained by any beneficial owner of an insurer,
or director or officer thereof, described in Section 1104.2, by
reason of his relationship to such insurer, any profit realized by
him from any purchase and sale, or any sale and purchase, of any
stock of such insurer within any period of less than six months,
unless such stock was acquired in good faith in connection with a
debt previously contracted, shall inure to, and be recoverable by,
the insurer, irrespective of the intent of the beneficial owner,
director or officer who entered into the transaction of holding the
stock purchased or not repurchasing the stock sold for a period
exceeding six months. Suit to recover such profit may be instituted
at law or in equity in any court of competent jurisdiction by the
insurer or by the owner of any stock of the insurer in the name of
and on behalf of the insurer if the insurer shall fail or refuse to
bring such suit within 60 days after request or shall fail diligently
to prosecute the same thereafter; but no such suit shall be brought
more than two years after the date such profit was realized. This
section shall not be construed to cover any transaction where a
beneficial owner was not such both at the time of the purchase and
sale, or the sale and purchase, of the stock involved, or any
transaction or transactions which the commissioner may by rules and
regulations exempt as not within the scope of this section or Section
1104.2.
1104.4. It shall be unlawful for any beneficial owner of an
insurer, or director or officer thereof, described in Section 1104.2,
to, directly or indirectly, sell any stock of such insurer if he or
his principal does not own the stock sold, or, if he or his principal
owns the stock, he does not deliver it against such sale within 20
days thereafter, or does not within five days after such sale deposit
it in the mails or other usual channels of transportation; but no
person shall be deemed to have violated this section if he proves
that notwithstanding the exercise of good faith he was unable to make
such delivery or deposit within such time, or that to do so would
cause undue inconvenience or expense.
1104.5. The provisions of Section 1104.3 shall not apply to any
purchase and sale, or sale and purchase, and the provisions of
Section 1104.4 shall not apply to any sale of stock of a domestic
insurer (not then or theretofore held in an investment account), by a
dealer in the ordinary course of his business and incidental to the
establishment or maintenance by him of a primary or secondary market
(other than on an exchange as defined in the Securities Exchange Act
of 1934) for such stock. The commissioner may, by such rules and
regulations as he deems necessary or appropriate in the public
interest, define and prescribe terms and conditions with respect to
stock held in an investment account and transactions made in the
ordinary course of business and incident to the establishment or
maintenance of a primary or secondary market.
1104.6. The provisions of Sections 1104.2, 1104.3, and 1104.4 shall
not apply to foreign or domestic arbitrage transactions unless made
in contravention of such rules and regulations as the commissioner
may adopt in order to carry out the purposes of this article.
1104.7. The term "stock" as it is used in Sections 1104.2, 1104.3,
1104.4, 1104.5 and 1104.8 means any stock or similar security, or any
security, convertible, with or without consideration, into such
stock or carrying any warrant or right to subscribe to or purchase
such stock, or any such warrant or right, or any other security which
the commissioner shall deem to be of similar nature and consider
necessary or appropriate, by such rules and regulations as he may
prescribe in the public interest or for the protection of investors,
to treat as stock.
1104.8. The provisions of Sections 1104.2, 1104.3, and 1104.4 shall
not apply to a domestic insurer if:
(a) Its stock shall be registered, or shall be required to be
registered, pursuant to Section 12 of the Securities Exchange Act of
1934, as amended; or if
(b) Such domestic insurer shall not have any class of its stock
held of record by 100 or more persons on the last business day of the
year next preceding the year in which stock of the insurer would be
subject to the provisions of Sections 1104.2, 1104.3, and 1104.4
except for the provisions of this subdivision.
1104.9. (a) (1) As used in this section, "qualified custodian"
means: (A) commercial banks (as defined in Section 105 of the
Financial Code), savings and loan associations (as defined in Section
5102 of the Financial Code), and trust companies (other than trust
departments of title insurance companies), or any entity approved by
the commissioner as a qualified custodian; (B) that is either (i)
domiciled and has a principal place of business in this state or (ii)
a national banking association with a trust office located in this
state; and (C) that either has a net worth of at least one hundred
million dollars ($100,000,000) or is able to demonstrate to the
satisfaction of the commissioner that it is financially secure. The
commissioner may consider, among other factors, evidence of the
following in order to determine whether a custodian is financially
secure for the purpose of this subdivision: (i) its obligations under
an agreement approved by the commissioner pursuant to subdivision
(c) are guaranteed by its parent holding company, (ii) its parent
holding company has a net worth of at least one hundred million
dollars ($100,000,000), or (iii) it is a member of a holding company
system with a net worth of at least one hundred million dollars
($100,000,000).
(2) As used in this section, "qualified depository" means an
entity that is located in this state or a reciprocal state and is (A)
a depository that provides for the long-term immobilization of
securities or a clearing corporation that is also a depository, and
that in either case has been approved by or registered with the
Securities and Exchange Commission, (B) a Federal Reserve bank, or
(C) an entity approved by the commissioner as a qualified depository.
A "qualified depository" may also include an entity that is
located outside the United States, if it is a securities depository
and clearing agency, incorporated or organized under the laws of a
country other than the United States, (i) that operates a
transnational system for securities or equivalent book entries
(specifically Euroclear and Cedel, or successors to all or
substantially all of their operations), or (ii) that operates a
central system for securities or equivalent book entries, but solely
for securities issued by, or by entities within, the country in which
the securities depository and clearing agency is incorporated or
organized. The depository shall meet all qualifying requirements
imposed by this section upon Euroclear or Cedel.
(3) As used in this section, "qualified subcustodian" means an
entity located in this state or a reciprocal state (A) that holds
securities of the domestic insurer, and maintains an account through
which the securities are held, in this state or a reciprocal state
and (B) that has shareholder equity of at least one hundred million
dollars ($100,000,000) or is able to demonstrate to the satisfaction
of the commissioner that it is financially secure. The qualified
subcustodian shall be: (A) a commercial bank, a savings and loan
association, or a trust company (other than trust departments of
title insurance companies); (B) a subsidiary of a qualified
custodian; or (C) any entity approved by the commissioner as a
qualified subcustodian. The commissioner may consider, among other
factors, evidence of the following in order to determine whether a
subcustodian is financially secure for the purpose of this
subdivision: (i) its obligations are guaranteed by its parent
company, (ii) its parent holding company has shareholder equity of at
least one hundred million dollars ($100,000,000), or (iii) it is a
member of a holding company system with shareholder equity of at
least one hundred million dollars ($100,000,000). A "qualified
subcustodian" may also include an entity that is located outside the
United States, that is used by the domestic insurer for the purpose
of obtaining access to a qualified depository located outside the
United States. The qualified foreign subcustodian shall be a banking
institution or trust company, incorporated or organized under the
laws of a country other than the United States, that is regulated by
that country's government or an agency thereof, and that has
shareholders' equity in excess of two hundred million dollars
($200,000,000), whether in United States dollars or the equivalent of
United States dollars, as of the close of its most recently
completed fiscal year; or a majority-owned direct or indirect
subsidiary of a qualified United States bank or bank holding company,
if the subsidiary is incorporated or organized under the laws of a
country other than the United States and has shareholders' equity in
excess of one hundred million dollars ($100,000,000), whether in
United States dollars or the equivalent of United States dollars, as
of the close of its most recently completed fiscal year; or is able
to demonstrate to the satisfaction of the commissioner that it is
financially secure. The commissioner may consider, among other
factors, evidence of the following in order to determine whether a
qualified foreign subcustodian is financially secure for purposes of
this subdivision: (i) its obligations are guaranteed by its parent
company, (ii) its parent holding company has shareholder equity of at
least two hundred million dollars ($200,000,000), or (iii) it is a
member of a holding company system with shareholder equity of at
least two hundred million dollars ($200,000,000).
(4) As used in this section, "subsidiary" means: (A) an entity all
of whose voting securities (other than director qualifying shares,
if any) are owned, directly or indirectly, by a qualified custodian;
or (B) any affiliated entity approved by the commissioner as a
subsidiary of a qualified custodian. For the purpose of this section,
an affiliated entity means an entity that (A) controls or is
controlled, either directly or indirectly or through one or more
intermediaries by a qualified custodian or (B) is under the common
control, directly or indirectly, as or with a qualified custodian.
(5) As used in this section, "entity approved by the commissioner
as a qualified custodian," "entity approved by the commissioner as a
qualified depository," "entity approved by the commissioner as a
qualified subcustodian," and "entity approved by the commissioner as
a subsidiary of a qualified custodian" mean those entities that meet
the conditions or standards established by the commissioner. The
commissioner shall charge and collect in advance a one-time fee of
one thousand five hundred dollars ($1,500) to review an application
for approval of any entity pursuant to this section.
(6) As used in this section, "reciprocal state" has the same
meaning as in subdivision (f) of Section 1064.1.
(7) As used in this section, "moneys" means cash held incidental
to securities transactions occurring in the ordinary course of
business with respect to securities held pursuant to the custodial
agreements under this section.
(8) (A) Except as provided in subparagraph (B), as used in this
section, "insurer," "domestic insurer," and "domestic admitted
insurer" mean any insurer, other than a domestic life insurer that is
incorporated or that has its principal place of business in this
state. Except as provided in subparagraph (B), no portion of this
section applies to domestic life insurers nor shall this section
affect the interpretation of any other portion of this code with
respect to domestic life insurers nor is it intended to create a
precedent for the application of its provisions to those insurers.
However, the exclusion of domestic life insurers from this section
shall not be construed to diminish the commissioner's existing
authority over those insurers under any other provision of this code.
(B) Domestic life insurers that are wholly owned by any insurer
other than a domestic life insurer or are part of an insurance
holding company system whose other insurer affiliates are not
domestic life insurers may elect to be subject to this section by
affirmatively stating that election in the statement otherwise
required to be filed by that system pursuant to Section 1215.4.
(b) Notwithstanding Section 1104.1, a domestic admitted insurer
may maintain its securities and moneys in a reciprocal state, subject
to the requirements of this section, through a custodian account
located in California in or with a qualified custodian, and that
qualified custodian may maintain those securities or moneys in a
qualified depository or qualified subcustodian, either or both of
which may be located in a reciprocal state. In addition, a domestic
insurer that has foreign investments or any other investments that
require delivery outside of the United States upon sale or maturity
that qualify under Section 1240, 1241, or 10506, or any other
provision of this code, may maintain those securities or moneys in or
with a qualified depository located in a jurisdiction outside the
United States. However, the aggregate amount of general account
investments so deposited shall not exceed the lesser of 5 percent of
the total admitted assets of the insurer or 25 percent of the excess
of admitted assets over the sum of paid-up capital, liabilities, and
surplus required by Section 700.02. However, unless exempted by the
commissioner, not more than 50 percent of that amount of assets that
an insurer is authorized to invest pursuant to Section 1241 or 1241.1
may be maintained in any single country in a qualified depository as
defined in clause (ii) of paragraph (2) of subdivision (a) and as to
life companies not more than 12.5 percent of that amount of assets
that an insurer is authorized to invest pursuant to Section 1241 or
1241.1 may be maintained in any single country in a qualified
depository as defined in clause (ii) of paragraph (2) of subdivision
(a). The percentage or dollar value of admitted assets and paid-up
capital and liabilities shall be determined by the insurer's last
preceding annual statement of conditions and affairs made as of the
preceding December 31 that has been filed with the commissioner
pursuant to law. No broker or agent, as defined in the Federal
Securities Exchange Act of 1934 (15 U.S.C. Sec. 78c et seq.), may
serve as a qualified custodian, qualified subcustodian, or qualified
depository under this section. However, no otherwise qualified
custodian or subcustodian shall be disqualified on account of its
activities as a broker or dealer, as so defined, when the activities
are incidental to its custodial or other business.
(c) No securities shall be deposited in or with a qualified
custodian, qualified depository, or qualified subcustodian except as
authorized by an agreement between the insurer and the qualified
custodian, if the agreement is satisfactory to and has been approved
by the commissioner. The agreement shall require that the securities
be held by the qualified custodian for the benefit of the insurer and
that the books and records of the qualified custodian shall so
designate. The agreement shall further require that beneficial title
to the securities remain in the insurer and shall require that the
qualified subcustodian and qualified depository be the agents of the
qualified custodian. The agreement shall also specifically require
that the qualified custodian shall exercise the standard of care of a
professional custodian engaged in the banking or trust company
industry and having professional expertise in financial and
securities processing transactions and custody would observe in these
affairs. This section does not affect the burden of proof under
applicable law with respect to the assertion of liability in any
claim, action, or dispute alleging any breach of, or failure to
observe, that standard of care.
(d) No agreement between the qualified custodian and the insurer
shall be approved by the commissioner unless the qualified custodian
agrees therein to comply with this section. Except when the agreement
is submitted in conjunction with an application for an original
certificate of authority or variable contract qualification, a fee of
five hundred dollars ($500) shall be paid to the commissioner at the
time of filing the agreement for approval. However, no fee shall be
required if the form of the agreement has been previously submitted
for approval and approved by the commissioner as certified by the
insurer and qualified custodian submitting the agreement to the
commissioner. The agreement shall be deemed approved unless, within
60 days after receipt by the commissioner of that agreement and any
required filing fee, the commissioner has disapproved the agreement
in writing citing specific reasons for disapproval.
(e) Notwithstanding the maintenance of securities with an
out-of-state qualified depository or qualified subcustodian pursuant
to agreement, if the commissioner has reasonable cause to believe
that the domestic insurer (1) is conducting its business and affairs
in a manner as to threaten to render it insolvent, or (2) is in a
hazardous condition or is conducting its business and affairs in a
manner that is hazardous to its policyholders, creditors, or the
public, or (3) has committed or is committing or has engaged or is
engaging in any act that would constitute grounds for rendering it
subject to conservation or liquidation proceedings, or if the
commissioner determines that irreparable loss and injury to the
property and business of the domestic insurer has occurred or may
occur unless the commissioner acts immediately, then the commissioner
may, without hearing, order the insurer and the qualified custodian
promptly to effect the transfer of the securities back to a qualified
custodian, qualified subcustodian, or qualified depository located
in this state from any qualified depository or qualified subcustodian
located outside of this state (the transfer order). Upon receipt of
the transfer order, the qualified custodian shall promptly effect the
return of the securities. Notwithstanding the pendency of any
hearing or action provided for in subdivision (f), the transfer order
shall be complied with by those persons subject to that order. Any
challenge to the validity of the transfer order shall be made in
accordance with subdivision (f). It is the responsibility of both the
insurer and the qualified custodian to oversee that compliance with
the transfer order is completed as expeditiously as possible. Upon
receipt of a transfer order, there shall be no trading of the
securities without specific instructions from the commissioner until
the securities are received in this state, except to the extent
trading transactions are in process on the day the transfer order is
received by the insurer and the failure to complete the trade may
result in loss to the insurer's account. Issuance of a transfer order
does not affect the qualified custodian's liabilities with regard to
the securities that are the subject of the order.
(f) At the same time the transfer order is served, the
commissioner shall issue and also serve upon the insurer a notice of
hearing to be held at a time and place fixed therein which shall not
be less than 20 nor more than 45 days after the service thereof. Upon
request of the insurer and agreement of the department, the hearing
may be held within a shorter time but in no event less than 10 days
after the service of the notice of hearing. The transfer order and
notice of hearing may be served by certified mail, express mail,
messenger, telegram, or any other means calculated to give prompt
actual notice to (1) the California office of the insurer designated
in the agreement, its home office as shown on its most recently filed
annual or quarterly statement, or its California agent for service
of process; and (2) the California office of the qualified custodian
designated in the agreement. If, as a result of the hearing, any of
the statements as to conduct, conditions, or grounds for the transfer
order are found to be true, or if other conditions or grounds are
discovered or become known at the hearing and are found to be true,
the commissioner shall affirm the transfer order and may make
additional order or orders, pertaining to the transfer order, as may
be reasonably necessary.
The insurer subject to the transfer order is entitled to judicial
review in the state of the commissioner's order issued as a result of
the hearing.
Alternatively, at any time prior to the commencement of the
hearing on the transfer order, the insurer may waive the hearing and
have judicial review in this state of the transfer order by petition
for writ of mandate and declaratory relief without first exhausting
administrative remedies or procedures. In that event the insurer is
not entitled to any extraordinary remedies prior to trial.
No person other than the insurer has standing at the hearing by
the commissioner or for any judicial review of the transfer order.
1105. This article shall not prevent:
(a) The purchase by any person of any asset which the commissioner
requires to be sold, at a price approved by the commissioner.
(b) The borrowing in accordance with its terms by any person upon
a policy of life insurance upon his own life.
(c) The payment of a fee to any attorney for legal services
rendered to any such insurer.
(d) The receipt of advances under agency contracts by agents of
life insurers.
(e) Any admitted insurer's officers, directors, trustees or other
persons who have authority in the management of the funds of such
insurer from entering into any transaction with such insurer if:
(1) Such transaction is pursuant to a permit issued by the
Insurance Commissioner under authority granted to him by other
provisions of this code or is such as requires his approval prior to
its consummation under other provisions of this code;
(2) The application for any such permit or the request for any
such approval sets forth under oath the complete details concerning
all such transactions with any such officers, directors, trustees or
other persons; and
(3) Where the commissioner in his permit or approval specifically
finds that the consummation of such transaction will not be unfair,
unjust or inequitable to such insurer or to any of its stockholders
or policyholders.
(f) Any transaction between an insurer and a person having
authority in the management of the insurer's funds (except officers,
directors, and trustees), if such insurer is subject to registration
and reporting under the Insurance Holding Company System Regulatory
Act (Article 4.7 (commencing with Section 1215) of Chapter 2 of this
part), or subject to substantially similar registration and reporting
requirements under the laws of its domicile.
(g) An admitted insurer making a loan for the purchase of a
principal residence by, and acquiring, at a price not to exceed the
fair market value thereof, the principal residence from, an officer
or person having authority in management of the insurer's funds, nor
shall such officer or person be prohibited from accepting such loan
or acquisition, in connection with the relocation of the place of
employment at the request of the insurer, either during the course of
employment or upon initial employment of such officer or person
having authority in management of the insurer's funds.
Any loan permitted under this subdivision shall be secured by a
first trust deed or first mortgage, shall not exceed 90 percent of
the fair market value of the property, shall carry an interest rate
no more favorable than that rate given to other employees of such
insurer not subject to the limitations of this article and shall be
subject to the approval of the insurer's board of directors or
delegated committee thereof.
This subdivision shall not apply to directors and trustees of
insurers.
1106. Any person violating, or wilfully aiding another in the
violation of, Sections 1101, 1101.1, 1102, 1103, 1104 or the
commissioner's order issued pursuant to Section 1104.1 is guilty of a
misdemeanor. The commissioner shall, after a hearing upon due
notice, revoke, or deny the renewal of, the certificate of authority
of a domestic admitted insurer persisting for more than 60 days from
and after the commissioner's order issued pursuant to Section 1104.1
in failure to comply with such order. The proceedings shall be
conducted in accordance with Chapter 5 of Part 1 of Division 3 of
Title 2 of the Government Code and the commissioner shall have the
powers granted therein.
1107. In accordance with either subdivision (e) of Section 1001 or
Section 1101.1 of the Corporations Code, an insurer may apply for the
insurance commissioner's approval of the terms and conditions of the
covered transactions and the fairness of such terms and conditions
to deliver consideration other than securities which shall be in such
form, contain such information and be accompanied by such documents
as the commissioner deems appropriate or requires.
1107.1. The commissioner shall require the payment of two hundred
fifty dollars ($250) in lawful money of the United States as fee for
the determination referred to in Section 1107.
1100. In this state, all investments and deposits of the assets of
an insurer, all purchases on behalf of an insurer, and all sales made
of the property and effects of an insurer shall be made in its own
name, or in that of a corporation authorized to act as a trustee
under the laws of this state, or in the name of a nominee of such a
corporation in accordance with any law of this state permitting such
a trustee to make use of nominees, or in the name of a qualified
custodian, qualified subcustodian, or qualified depository (as
defined in Section 1104.9) or in the name of a nominee of a qualified
custodian, qualified subcustodian, or qualified depository, provided
that the nominee is not a corporation and, as to any nominee which
is a partnership, the partnership shall consist solely of the
employees, officers, or directors of the qualified custodian,
qualified subcustodian, or qualified depository or a corporation
which is a member of the same holding company system as the nominee,
or any combination thereof, or in the name of a nominee approved by
the commissioner.
1100.1. Every admitted incorporated insurer may under a certificate
of authority issued pursuant to the provisions of Article 3
(commencing with Section 699), engage in this state in the type of
loan transactions otherwise permitted by law without obtaining any
other license or certificate.
Pursuant to the authority contained in Section 1 of Article XV of
the State Constitution, the restrictions upon rates of interest
contained in Section 1 of Article XV of the California Constitution
shall not apply to any obligation of, loans made by, or forbearances
of, any incorporated admitted insurer.
This section creates and authorizes incorporated admitted insurers
as an exempt class of persons pursuant to Section 1 of Article XV of
the Constitution.
1101. (a) An admitted insurer's officers, directors, trustees and
any persons who have authority in the management of the insurer's
funds, shall not, unless otherwise provided in this code:
(1) Receive any money or valuable thing for negotiating,
procuring, recommending or aiding in, any purchase by or sale to such
insurer of any property, or any loan from such insurer.
(2) Be pecuniarily interested as principal, coprincipal, agent,
attorney or beneficiary, in any such purchase, sale or loan.
(3) Directly or indirectly purchase, or be interested in the
purchase of, any of the assets of the insurer.
(b) This section shall not apply to:
(1) The purchase or exchange of stock of an admitted insurer by an
admitted insurer or between admitted insurers nor to any merger,
consolidation or corporate reorganization of such insurers, and shall
not apply as to such purchase, merger, exchange, consolidation or
reorganization, nor to the officers, directors, trustees or any
persons having authority in the management of such insurers funds in
respect to any such transaction and no such transaction shall be
either void or voidable, if:
(i) The transaction is just and reasonable as to the insurers
involved at the time it is authorized or approved and if no such
officer, director, trustee or other person having authority in the
management of such insurers funds receives any money or other
valuable thing, other than his usual compensation for his regular
duties, for negotiating, procuring, recommending or aiding in such
transaction, and, either
(ii) Any interest in such transaction on the part of any officers,
directors, trustees, or persons who have authority in the management
of any such insurer's funds is disclosed or known to its board of
directors or committee, authorizing, approving or ratifying the
transaction, and noted in the minutes thereof, and the board or
committee authorizes, approves or ratifies the transaction in good
faith by a vote sufficient for the purpose without counting the vote
or votes of any interested officers, directors, trustees, or persons
who have authority in the management of the funds of any such
insurer, or
(iii) The fact of such interest is disclosed or known to the
shareholders in the case of a stock insurance company, or in the case
of a mutual insurer to the policyholders, and they approve or ratify
the transaction in good faith by a vote or written consent of a
majority of the shares or policyholders, as the case may be, entitled
to vote, unless the consent or vote of more than a majority is
otherwise required, in which event the vote or written consent shall
be that so otherwise required.
Any such officer, director, trustee, or other person who has such
interest may be counted in determining the presence of a quorum at
any meeting which authorizes, approves or ratifies such transaction.
(2) Any transaction relating to an insurer if the transaction
meets the other requirements of subdivision (b) and such officers,
directors, and trustees of the insurer do not in the aggregate own
more than 5 percent of the stock of any corporation with which the
insurer is entering into a transaction.
(3) Any transaction if prior to its consummation the insurer has
applied for and obtained from the commissioner a certificate of
exemption in respect to the specific transaction therein described
and such transaction is consummated in conformity with such
certificate and the representations and disclosures made in or in
connection with the application therefor.
(i) To obtain the certificate of exemption the insurer shall file
with the commissioner a written application, accompanied by a filing
fee of two hundred ninety-five dollars ($295). Such application shall
be verified as provided in Section 834, be in such form as the
commissioner shall require and shall contain all of the following:
(A) A specific description of the particular transaction for which
the certificate is sought.
(B) Copies of all contracts and other legal documents involved or
to be involved in the transaction.
(C) A description of all assets involved in the transaction.
(D) The names, titles, capacities and business relationships of
all persons in any way involved in the transaction who are connected
with the insurer or any of its affiliates, officers, directors,
managers, or controlling persons or entities in any of the capacities
described in this section.
(E) A description of any and all considerations on either or any
side of the transaction.
(F) Evidence that its governing board has specifically authorized
the filing of the application.
(G) Such other information, opinions, or matters as the
commissioner may require.
The commissioner may issue such certificate of exemption if he
finds, with or without a hearing, that the transaction is fair, just
and equitable and not hazardous to policyholders, stockholders or
creditors. The commissioner may impose such conditions, including but
not limited to disclosure of the circumstances and terms of the
transaction either before or after its consummation either publicly
or to such persons and entities as he may designate and the approval
of the transaction by such persons or entities as he may designate.
He may also require that a report of the transaction be filed with
him subsequent to its consummation in such form and containing such
information as he may prescribe.
The certificate of exemption issued pursuant to paragraph (3) of
subdivision (b) shall only exempt the transaction from the
prohibitions of this section and shall not affect the rights or
remedies of any persons under any other law.
The amendment made to this section at the 1955 General Session
shall not apply to contracts, sales, transfers or other transactions
entered into prior to the effective date hereof.
The commissioner shall not issue a certificate of exemption under
paragraph (3) of subdivision (b) in respect to any transaction
consummated prior to the effective date of the amendment made to this
section at the 1967 Regular Session.
(c) Whenever it appears to the commissioner that any insurer, or
any director, officer, employee, or agent thereof, has committed or
is about to commit a violation of this section, the commissioner may
apply to the superior court for the county in which the principal
office of the insurer is located, or if such insurer has no such
office in this state, then to the Superior Court for the County of
Los Angeles, or for the City and County of San Francisco, for an
order enjoining such insurer, or such director, officer, employee, or
agent thereof, from violating or continuing to violate this section,
and for such other equitable relief as the nature of the case and
the interests of the insurer's policyholders, creditors, and
shareholders or the public may require.
1101.1. An officer, excluding a director who holds no other office,
or employee of an admitted insurer shall not receive any money or
valuable thing directly or indirectly as a brokerage commission on
reinsurance ceded by such insurer and an insurer shall not pay such
commissions. This provision shall not apply to brokerage or
commissions authorized by the board of directors of the ceding
insurer as compensation for services actually rendered nor to
dividends received by any such officer or employee upon the stock of
a corporation in which such officer or employee or his immediate
family does not own a controlling interest or in fact exercises
control.
1102. The financial obligation of any officer, director, trustee,
or other person having authority in the management of an insurer's
funds shall not be guaranteed by such insurer in any capacity, and
any such guarantee shall be void.
1103. Whenever an insurer is injured or made to suffer loss by
reason of any violation of the provisions of sections 1101, 1102 or
1104, such insurer may recover from the guilty officer, director,
trustee or other person, or any one or more of them jointly or
severally damages sufficient to compensate such insurer for such
loss.
1104. An admitted insurer shall not make any loan, other than a
policy loan, to any officer, director, trustee or other person having
authority in the management of its funds, nor shall such officer,
director, trustee or other person accept any such loan.
This section does not prohibit a loan to, or for the benefit of,
an employee for the purpose of paying the premiums on a life
insurance policy on the life of such employee.
1104.1. The commissioner may from time to time require any domestic
admitted insurer to report to him, in such detail as he may
prescribe, the moneys and securities owned by it, the place where
such moneys and securities are deposited and, in the case of moneys
and securities deposited outside the State, the reason for
maintaining each such deposit outside the State.
Whenever the commissioner after hearing following notice, finds
that such moneys or securities are maintained on deposit outside the
State in excess of legal requirements and of the reasonable needs of
the business of such insurer, he may order such insurer to transfer
to, and maintain in, this State money and securities to the extent of
such excess and to cease, pending such transfer, from unnecessary
transfers of moneys and securities from this State to any place
outside this State.
1104.2. Every person who is directly or indirectly the beneficial
owner of more than 10 percent of any class of stock of a domestic
insurer or who is a director or officer of such insurer shall file in
the office of the Insurance Commissioner on or before the 31st day
of October, 1965, or within 10 days after he becomes such a
beneficial owner, director or officer, a statement, in such form as
the commissioner may prescribe, of the amount of all stock of such
insurer of which he is the beneficial owner, and within 10 days after
the close of each calendar month thereafter, if there has been a
change in such ownership during such month, shall file in the office
of the commissioner a statement, in such form as the commissioner
shall prescribe, indicating his ownership at the close of the
calendar month and such changes in his ownership as have occurred
during such calendar month.
1104.3. For the purpose of preventing the unfair use of information
which may have been obtained by any beneficial owner of an insurer,
or director or officer thereof, described in Section 1104.2, by
reason of his relationship to such insurer, any profit realized by
him from any purchase and sale, or any sale and purchase, of any
stock of such insurer within any period of less than six months,
unless such stock was acquired in good faith in connection with a
debt previously contracted, shall inure to, and be recoverable by,
the insurer, irrespective of the intent of the beneficial owner,
director or officer who entered into the transaction of holding the
stock purchased or not repurchasing the stock sold for a period
exceeding six months. Suit to recover such profit may be instituted
at law or in equity in any court of competent jurisdiction by the
insurer or by the owner of any stock of the insurer in the name of
and on behalf of the insurer if the insurer shall fail or refuse to
bring such suit within 60 days after request or shall fail diligently
to prosecute the same thereafter; but no such suit shall be brought
more than two years after the date such profit was realized. This
section shall not be construed to cover any transaction where a
beneficial owner was not such both at the time of the purchase and
sale, or the sale and purchase, of the stock involved, or any
transaction or transactions which the commissioner may by rules and
regulations exempt as not within the scope of this section or Section
1104.2.
1104.4. It shall be unlawful for any beneficial owner of an
insurer, or director or officer thereof, described in Section 1104.2,
to, directly or indirectly, sell any stock of such insurer if he or
his principal does not own the stock sold, or, if he or his principal
owns the stock, he does not deliver it against such sale within 20
days thereafter, or does not within five days after such sale deposit
it in the mails or other usual channels of transportation; but no
person shall be deemed to have violated this section if he proves
that notwithstanding the exercise of good faith he was unable to make
such delivery or deposit within such time, or that to do so would
cause undue inconvenience or expense.
1104.5. The provisions of Section 1104.3 shall not apply to any
purchase and sale, or sale and purchase, and the provisions of
Section 1104.4 shall not apply to any sale of stock of a domestic
insurer (not then or theretofore held in an investment account), by a
dealer in the ordinary course of his business and incidental to the
establishment or maintenance by him of a primary or secondary market
(other than on an exchange as defined in the Securities Exchange Act
of 1934) for such stock. The commissioner may, by such rules and
regulations as he deems necessary or appropriate in the public
interest, define and prescribe terms and conditions with respect to
stock held in an investment account and transactions made in the
ordinary course of business and incident to the establishment or
maintenance of a primary or secondary market.
1104.6. The provisions of Sections 1104.2, 1104.3, and 1104.4 shall
not apply to foreign or domestic arbitrage transactions unless made
in contravention of such rules and regulations as the commissioner
may adopt in order to carry out the purposes of this article.
1104.7. The term "stock" as it is used in Sections 1104.2, 1104.3,
1104.4, 1104.5 and 1104.8 means any stock or similar security, or any
security, convertible, with or without consideration, into such
stock or carrying any warrant or right to subscribe to or purchase
such stock, or any such warrant or right, or any other security which
the commissioner shall deem to be of similar nature and consider
necessary or appropriate, by such rules and regulations as he may
prescribe in the public interest or for the protection of investors,
to treat as stock.
1104.8. The provisions of Sections 1104.2, 1104.3, and 1104.4 shall
not apply to a domestic insurer if:
(a) Its stock shall be registered, or shall be required to be
registered, pursuant to Section 12 of the Securities Exchange Act of
1934, as amended; or if
(b) Such domestic insurer shall not have any class of its stock
held of record by 100 or more persons on the last business day of the
year next preceding the year in which stock of the insurer would be
subject to the provisions of Sections 1104.2, 1104.3, and 1104.4
except for the provisions of this subdivision.
1104.9. (a) (1) As used in this section, "qualified custodian"
means: (A) commercial banks (as defined in Section 105 of the
Financial Code), savings and loan associations (as defined in Section
5102 of the Financial Code), and trust companies (other than trust
departments of title insurance companies), or any entity approved by
the commissioner as a qualified custodian; (B) that is either (i)
domiciled and has a principal place of business in this state or (ii)
a national banking association with a trust office located in this
state; and (C) that either has a net worth of at least one hundred
million dollars ($100,000,000) or is able to demonstrate to the
satisfaction of the commissioner that it is financially secure. The
commissioner may consider, among other factors, evidence of the
following in order to determine whether a custodian is financially
secure for the purpose of this subdivision: (i) its obligations under
an agreement approved by the commissioner pursuant to subdivision
(c) are guaranteed by its parent holding company, (ii) its parent
holding company has a net worth of at least one hundred million
dollars ($100,000,000), or (iii) it is a member of a holding company
system with a net worth of at least one hundred million dollars
($100,000,000).
(2) As used in this section, "qualified depository" means an
entity that is located in this state or a reciprocal state and is (A)
a depository that provides for the long-term immobilization of
securities or a clearing corporation that is also a depository, and
that in either case has been approved by or registered with the
Securities and Exchange Commission, (B) a Federal Reserve bank, or
(C) an entity approved by the commissioner as a qualified depository.
A "qualified depository" may also include an entity that is
located outside the United States, if it is a securities depository
and clearing agency, incorporated or organized under the laws of a
country other than the United States, (i) that operates a
transnational system for securities or equivalent book entries
(specifically Euroclear and Cedel, or successors to all or
substantially all of their operations), or (ii) that operates a
central system for securities or equivalent book entries, but solely
for securities issued by, or by entities within, the country in which
the securities depository and clearing agency is incorporated or
organized. The depository shall meet all qualifying requirements
imposed by this section upon Euroclear or Cedel.
(3) As used in this section, "qualified subcustodian" means an
entity located in this state or a reciprocal state (A) that holds
securities of the domestic insurer, and maintains an account through
which the securities are held, in this state or a reciprocal state
and (B) that has shareholder equity of at least one hundred million
dollars ($100,000,000) or is able to demonstrate to the satisfaction
of the commissioner that it is financially secure. The qualified
subcustodian shall be: (A) a commercial bank, a savings and loan
association, or a trust company (other than trust departments of
title insurance companies); (B) a subsidiary of a qualified
custodian; or (C) any entity approved by the commissioner as a
qualified subcustodian. The commissioner may consider, among other
factors, evidence of the following in order to determine whether a
subcustodian is financially secure for the purpose of this
subdivision: (i) its obligations are guaranteed by its parent
company, (ii) its parent holding company has shareholder equity of at
least one hundred million dollars ($100,000,000), or (iii) it is a
member of a holding company system with shareholder equity of at
least one hundred million dollars ($100,000,000). A "qualified
subcustodian" may also include an entity that is located outside the
United States, that is used by the domestic insurer for the purpose
of obtaining access to a qualified depository located outside the
United States. The qualified foreign subcustodian shall be a banking
institution or trust company, incorporated or organized under the
laws of a country other than the United States, that is regulated by
that country's government or an agency thereof, and that has
shareholders' equity in excess of two hundred million dollars
($200,000,000), whether in United States dollars or the equivalent of
United States dollars, as of the close of its most recently
completed fiscal year; or a majority-owned direct or indirect
subsidiary of a qualified United States bank or bank holding company,
if the subsidiary is incorporated or organized under the laws of a
country other than the United States and has shareholders' equity in
excess of one hundred million dollars ($100,000,000), whether in
United States dollars or the equivalent of United States dollars, as
of the close of its most recently completed fiscal year; or is able
to demonstrate to the satisfaction of the commissioner that it is
financially secure. The commissioner may consider, among other
factors, evidence of the following in order to determine whether a
qualified foreign subcustodian is financially secure for purposes of
this subdivision: (i) its obligations are guaranteed by its parent
company, (ii) its parent holding company has shareholder equity of at
least two hundred million dollars ($200,000,000), or (iii) it is a
member of a holding company system with shareholder equity of at
least two hundred million dollars ($200,000,000).
(4) As used in this section, "subsidiary" means: (A) an entity all
of whose voting securities (other than director qualifying shares,
if any) are owned, directly or indirectly, by a qualified custodian;
or (B) any affiliated entity approved by the commissioner as a
subsidiary of a qualified custodian. For the purpose of this section,
an affiliated entity means an entity that (A) controls or is
controlled, either directly or indirectly or through one or more
intermediaries by a qualified custodian or (B) is under the common
control, directly or indirectly, as or with a qualified custodian.
(5) As used in this section, "entity approved by the commissioner
as a qualified custodian," "entity approved by the commissioner as a
qualified depository," "entity approved by the commissioner as a
qualified subcustodian," and "entity approved by the commissioner as
a subsidiary of a qualified custodian" mean those entities that meet
the conditions or standards established by the commissioner. The
commissioner shall charge and collect in advance a one-time fee of
one thousand five hundred dollars ($1,500) to review an application
for approval of any entity pursuant to this section.
(6) As used in this section, "reciprocal state" has the same
meaning as in subdivision (f) of Section 1064.1.
(7) As used in this section, "moneys" means cash held incidental
to securities transactions occurring in the ordinary course of
business with respect to securities held pursuant to the custodial
agreements under this section.
(8) (A) Except as provided in subparagraph (B), as used in this
section, "insurer," "domestic insurer," and "domestic admitted
insurer" mean any insurer, other than a domestic life insurer that is
incorporated or that has its principal place of business in this
state. Except as provided in subparagraph (B), no portion of this
section applies to domestic life insurers nor shall this section
affect the interpretation of any other portion of this code with
respect to domestic life insurers nor is it intended to create a
precedent for the application of its provisions to those insurers.
However, the exclusion of domestic life insurers from this section
shall not be construed to diminish the commissioner's existing
authority over those insurers under any other provision of this code.
(B) Domestic life insurers that are wholly owned by any insurer
other than a domestic life insurer or are part of an insurance
holding company system whose other insurer affiliates are not
domestic life insurers may elect to be subject to this section by
affirmatively stating that election in the statement otherwise
required to be filed by that system pursuant to Section 1215.4.
(b) Notwithstanding Section 1104.1, a domestic admitted insurer
may maintain its securities and moneys in a reciprocal state, subject
to the requirements of this section, through a custodian account
located in California in or with a qualified custodian, and that
qualified custodian may maintain those securities or moneys in a
qualified depository or qualified subcustodian, either or both of
which may be located in a reciprocal state. In addition, a domestic
insurer that has foreign investments or any other investments that
require delivery outside of the United States upon sale or maturity
that qualify under Section 1240, 1241, or 10506, or any other
provision of this code, may maintain those securities or moneys in or
with a qualified depository located in a jurisdiction outside the
United States. However, the aggregate amount of general account
investments so deposited shall not exceed the lesser of 5 percent of
the total admitted assets of the insurer or 25 percent of the excess
of admitted assets over the sum of paid-up capital, liabilities, and
surplus required by Section 700.02. However, unless exempted by the
commissioner, not more than 50 percent of that amount of assets that
an insurer is authorized to invest pursuant to Section 1241 or 1241.1
may be maintained in any single country in a qualified depository as
defined in clause (ii) of paragraph (2) of subdivision (a) and as to
life companies not more than 12.5 percent of that amount of assets
that an insurer is authorized to invest pursuant to Section 1241 or
1241.1 may be maintained in any single country in a qualified
depository as defined in clause (ii) of paragraph (2) of subdivision
(a). The percentage or dollar value of admitted assets and paid-up
capital and liabilities shall be determined by the insurer's last
preceding annual statement of conditions and affairs made as of the
preceding December 31 that has been filed with the commissioner
pursuant to law. No broker or agent, as defined in the Federal
Securities Exchange Act of 1934 (15 U.S.C. Sec. 78c et seq.), may
serve as a qualified custodian, qualified subcustodian, or qualified
depository under this section. However, no otherwise qualified
custodian or subcustodian shall be disqualified on account of its
activities as a broker or dealer, as so defined, when the activities
are incidental to its custodial or other business.
(c) No securities shall be deposited in or with a qualified
custodian, qualified depository, or qualified subcustodian except as
authorized by an agreement between the insurer and the qualified
custodian, if the agreement is satisfactory to and has been approved
by the commissioner. The agreement shall require that the securities
be held by the qualified custodian for the benefit of the insurer and
that the books and records of the qualified custodian shall so
designate. The agreement shall further require that beneficial title
to the securities remain in the insurer and shall require that the
qualified subcustodian and qualified depository be the agents of the
qualified custodian. The agreement shall also specifically require
that the qualified custodian shall exercise the standard of care of a
professional custodian engaged in the banking or trust company
industry and having professional expertise in financial and
securities processing transactions and custody would observe in these
affairs. This section does not affect the burden of proof under
applicable law with respect to the assertion of liability in any
claim, action, or dispute alleging any breach of, or failure to
observe, that standard of care.
(d) No agreement between the qualified custodian and the insurer
shall be approved by the commissioner unless the qualified custodian
agrees therein to comply with this section. Except when the agreement
is submitted in conjunction with an application for an original
certificate of authority or variable contract qualification, a fee of
five hundred dollars ($500) shall be paid to the commissioner at the
time of filing the agreement for approval. However, no fee shall be
required if the form of the agreement has been previously submitted
for approval and approved by the commissioner as certified by the
insurer and qualified custodian submitting the agreement to the
commissioner. The agreement shall be deemed approved unless, within
60 days after receipt by the commissioner of that agreement and any
required filing fee, the commissioner has disapproved the agreement
in writing citing specific reasons for disapproval.
(e) Notwithstanding the maintenance of securities with an
out-of-state qualified depository or qualified subcustodian pursuant
to agreement, if the commissioner has reasonable cause to believe
that the domestic insurer (1) is conducting its business and affairs
in a manner as to threaten to render it insolvent, or (2) is in a
hazardous condition or is conducting its business and affairs in a
manner that is hazardous to its policyholders, creditors, or the
public, or (3) has committed or is committing or has engaged or is
engaging in any act that would constitute grounds for rendering it
subject to conservation or liquidation proceedings, or if the
commissioner determines that irreparable loss and injury to the
property and business of the domestic insurer has occurred or may
occur unless the commissioner acts immediately, then the commissioner
may, without hearing, order the insurer and the qualified custodian
promptly to effect the transfer of the securities back to a qualified
custodian, qualified subcustodian, or qualified depository located
in this state from any qualified depository or qualified subcustodian
located outside of this state (the transfer order). Upon receipt of
the transfer order, the qualified custodian shall promptly effect the
return of the securities. Notwithstanding the pendency of any
hearing or action provided for in subdivision (f), the transfer order
shall be complied with by those persons subject to that order. Any
challenge to the validity of the transfer order shall be made in
accordance with subdivision (f). It is the responsibility of both the
insurer and the qualified custodian to oversee that compliance with
the transfer order is completed as expeditiously as possible. Upon
receipt of a transfer order, there shall be no trading of the
securities without specific instructions from the commissioner until
the securities are received in this state, except to the extent
trading transactions are in process on the day the transfer order is
received by the insurer and the failure to complete the trade may
result in loss to the insurer's account. Issuance of a transfer order
does not affect the qualified custodian's liabilities with regard to
the securities that are the subject of the order.
(f) At the same time the transfer order is served, the
commissioner shall issue and also serve upon the insurer a notice of
hearing to be held at a time and place fixed therein which shall not
be less than 20 nor more than 45 days after the service thereof. Upon
request of the insurer and agreement of the department, the hearing
may be held within a shorter time but in no event less than 10 days
after the service of the notice of hearing. The transfer order and
notice of hearing may be served by certified mail, express mail,
messenger, telegram, or any other means calculated to give prompt
actual notice to (1) the California office of the insurer designated
in the agreement, its home office as shown on its most recently filed
annual or quarterly statement, or its California agent for service
of process; and (2) the California office of the qualified custodian
designated in the agreement. If, as a result of the hearing, any of
the statements as to conduct, conditions, or grounds for the transfer
order are found to be true, or if other conditions or grounds are
discovered or become known at the hearing and are found to be true,
the commissioner shall affirm the transfer order and may make
additional order or orders, pertaining to the transfer order, as may
be reasonably necessary.
The insurer subject to the transfer order is entitled to judicial
review in the state of the commissioner's order issued as a result of
the hearing.
Alternatively, at any time prior to the commencement of the
hearing on the transfer order, the insurer may waive the hearing and
have judicial review in this state of the transfer order by petition
for writ of mandate and declaratory relief without first exhausting
administrative remedies or procedures. In that event the insurer is
not entitled to any extraordinary remedies prior to trial.
No person other than the insurer has standing at the hearing by
the commissioner or for any judicial review of the transfer order.
1105. This article shall not prevent:
(a) The purchase by any person of any asset which the commissioner
requires to be sold, at a price approved by the commissioner.
(b) The borrowing in accordance with its terms by any person upon
a policy of life insurance upon his own life.
(c) The payment of a fee to any attorney for legal services
rendered to any such insurer.
(d) The receipt of advances under agency contracts by agents of
life insurers.
(e) Any admitted insurer's officers, directors, trustees or other
persons who have authority in the management of the funds of such
insurer from entering into any transaction with such insurer if:
(1) Such transaction is pursuant to a permit issued by the
Insurance Commissioner under authority granted to him by other
provisions of this code or is such as requires his approval prior to
its consummation under other provisions of this code;
(2) The application for any such permit or the request for any
such approval sets forth under oath the complete details concerning
all such transactions with any such officers, directors, trustees or
other persons; and
(3) Where the commissioner in his permit or approval specifically
finds that the consummation of such transaction will not be unfair,
unjust or inequitable to such insurer or to any of its stockholders
or policyholders.
(f) Any transaction between an insurer and a person having
authority in the management of the insurer's funds (except officers,
directors, and trustees), if such insurer is subject to registration
and reporting under the Insurance Holding Company System Regulatory
Act (Article 4.7 (commencing with Section 1215) of Chapter 2 of this
part), or subject to substantially similar registration and reporting
requirements under the laws of its domicile.
(g) An admitted insurer making a loan for the purchase of a
principal residence by, and acquiring, at a price not to exceed the
fair market value thereof, the principal residence from, an officer
or person having authority in management of the insurer's funds, nor
shall such officer or person be prohibited from accepting such loan
or acquisition, in connection with the relocation of the place of
employment at the request of the insurer, either during the course of
employment or upon initial employment of such officer or person
having authority in management of the insurer's funds.
Any loan permitted under this subdivision shall be secured by a
first trust deed or first mortgage, shall not exceed 90 percent of
the fair market value of the property, shall carry an interest rate
no more favorable than that rate given to other employees of such
insurer not subject to the limitations of this article and shall be
subject to the approval of the insurer's board of directors or
delegated committee thereof.
This subdivision shall not apply to directors and trustees of
insurers.
1106. Any person violating, or wilfully aiding another in the
violation of, Sections 1101, 1101.1, 1102, 1103, 1104 or the
commissioner's order issued pursuant to Section 1104.1 is guilty of a
misdemeanor. The commissioner shall, after a hearing upon due
notice, revoke, or deny the renewal of, the certificate of authority
of a domestic admitted insurer persisting for more than 60 days from
and after the commissioner's order issued pursuant to Section 1104.1
in failure to comply with such order. The proceedings shall be
conducted in accordance with Chapter 5 of Part 1 of Division 3 of
Title 2 of the Government Code and the commissioner shall have the
powers granted therein.
1107. In accordance with either subdivision (e) of Section 1001 or
Section 1101.1 of the Corporations Code, an insurer may apply for the
insurance commissioner's approval of the terms and conditions of the
covered transactions and the fairness of such terms and conditions
to deliver consideration other than securities which shall be in such
form, contain such information and be accompanied by such documents
as the commissioner deems appropriate or requires.
1107.1. The commissioner shall require the payment of two hundred
fifty dollars ($250) in lawful money of the United States as fee for
the determination referred to in Section 1107.
